RiskTech Forum

CFSI: Innovation Trends in Financial Services to the Underbanked

Posted: 29 February 2008  |  Source: CFSI

Significant discussion about underbanked consumers and the market opportunity they represent has occurred over the past several years. To meet this market opportunity, a number of startup companies have materialized with innovative products and services. CFSI has evaluated some of these companies in terms of their impact to consumers, their potential for financial return, and their degree of innovation.

The majority of companies observed and discussed in this report are in the startup or early seeding stage of development. In kind, the products and services these firms are bringing to the market are evolving across all three innovation segments: consumer products, marketing methods and distribution channels, or risk management tools. Several of the companies observed offer products that are grouped into more than one innovation segment. 

To address the unique needs and requirements of the underbanked, over 40 percent of the firms utilize or participate in alternative credit activities. Alternative data credit history and resulting lending are critical steps for underbanked consumer in traversing a path toward asset building.  While not entirely new, innovative marketing, distribution, and use of prepaid cards is also a large component of the services observed. Lastly, regardless of the product itself, business to consumer products seeking a more efficient and effective marketing, delivery, and service model are common across over 50 percent of the companies CFSI has observed.

The products and services these enterprises are developing can play a critical role in the lives of the underbanked. CFSI will continue to evaluate general trends as well as investment opportunities while the marketplace evolves and matures. The expanding number of firms entering the underbanked market with innovative products gives reason to be optimistic that companies entering this space can meet the criteria of customer impact, financial return, and innovation. The increase in underbanked innovation suggests that the financial services industry is beginning to realize the significant value of providing financial services to underbanked consumers in both profitable and responsible ways.

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